China’s New Rules on Internet Advertising

September 5, 2016

Almost overnight, China has gone from one of the least regulated to one of the world’s most regulated markets for online advertising.

The new approach has repercussions for any brand that’s currently advertising on the PRC’s media landscape. It’s also likely to cause wider ripples in the global internet so it’s worth getting up to speed on exactly what changes the regulators have made, as well as how they’ve gone about them.

In essence the new laws surrounding online advertising insist that publishers need to verify the ads they publish on their sites.

This means they need to verify both the ad content (such as any claims made) and also any credentials the advertiser provides. The impact of this is that publishing sites will need to review all ad content, and also keep records of who their advertisers are. Presumably they will also need to reject or block any ads not up to standard.

The main change is that the new regulation shifts onto publishers the responsibility for vetting claims made by advertisers. This gets complicated when the ad supply chain has more than two players (advertiser and publisher), as is frequently the case when foreign brands advertise in China.

So far, the regulations seem to be particularly affecting healthcare advertising. This sector is known to be highly active in online advertising, accounting for a large share of Chinese ad spend. Financial services also seem to be particularly affected by the new rules.

Most attempts to regulate the internet result in frustrating vague legislation that’s difficult to apply and falls down in situations of any complexity.

China’s latest efforts seem to be continuing this tradition. It’s unclear how it will be applied where programmatic advertising is used, and may put a damper on the growth of this technology. It’s unclear who is ultimately responsible for checking the content of native ads – is it the publisher site or the agency? How is it going to work for influencer marketing, which is so popular in China? These questions remain unanswered.

Why it matters

The change is significant for two reasons. Firstly, China’s ad market is large and growing. Secondly, it’s an influential market that usually leads where others follow. A lot of digital innovation tends to come out of the Chinese internet so this new regulatory approach may be indicative of prevailing trends for the wider world. The change could lead to new technology, as there may be a need to build some kind of compliance checking features into ad serving platforms.

If your brand is using a single ad platform to reach multiple territories, you may need to reconsider your approach if one of these territories is China.

You now need to enforce a greater level of involvement in this market. If you’re using an ad agency locally it’s wise to have a conversation with them to see how they are adjusting to the changes.

We know the Chinese market is a sizeable one in terms of online population and economic clout. In terms of online advertising, the spend isn’t quite as big as that of the US but online ads constitute a larger share of total advertising spend in China compared to the US.

That’s partly because it’s incredibly expensive to advertise on TV in China and the content is heavily censored. Internet advertising offers lower costs and more creative freedom. Internet users are also driven to watch online video rather than traditional TV, partly because online videos are less affected by censorship, which means there is an audience for ads in online video channels.

Wait and see

At this early stage, the Chinese regulators don’t seem to be taking a heavy handed approach to enforcement. Authorities are highly motivated to be seen to act in the matter of online advertising, particularly in the area of healthcare, so it’s likely that there will be enforcements soon. This is because of very sad case that’s been highly publicized across China and has made many people very angry.

A young student suffering from cancer followed the advice of online advertisers and chose to follow an experimental course of treatment from a hospital that had claimed high success rates. When Wei Zexi died, advertisers were criticised for influencing his medical choices through the use of paid ads on Baidu. Baidu has since had to set aside a huge sum of money to compensate other users who may potentially bring claims for economic harm from search results on the site.

As China’s key search engine and the one most affected by the Wei Zexi case, Baidu seems to be taking the new regulations seriously. It offers information on who its advertisers are, shown as links next to the paid ad results. It’s still relatively easy to advertise on Baidu and Sogou, another popular search engine. Haosou, a search engine that’s recently grabbed a sizeable market share, seems to be more stringent in terms of the way it’s implementing the new rules.

These new regulations could result in a shift in the market shares of China’s hotly competing search engines.

China is wrestling with questions about accountability in the wake of several food scandals, such as the notorious cases around baby milk. This has created a climate where the authorities are mandated to act to protect consumers. But China isn’t the only market wanting to protect consumers.

Other countries may implement similar online advertising regulation if it proves successful in China. Brands should be aware of the change in case similar regulation is implemented in other markets they operate in.